Question

The Alford Group had 250,000 shares of common stock outstanding at January 1, 2018. The following activities affected common shares during the year. There are no potential common shares outstanding.
  

2018
Feb.		28		Purchased 3,000 shares of treasury stock.
Oct.		31		Sold the treasury shares purchased on February 28.
Nov.		30		Issued 12,000 new shares.
Dec.		31		Net income for 2018 is $1,494,000.
2019
Jan.		15		Declared and issued a 2-for-1 stock split.
Dec.		31		Net income for 2019 is $1,494,000.

Required:

1. Determine the 2018 EPS.
2. Determine the 2019 EPS.
3. At what amount will the 2018 EPS be presented in the 2019 comparative financial statements?

(For all requirements, Enter your answers in thousands.)

Answer 1

Solution 1:

Computation of weighted average outstanding shares
Period	Outstanding shares	Fraction	Weighted average outstanding shares
1-Jan-18 to 28-Feb-18	250000	2/12	41666.67
1-Mar-18 to 31-Oct-18	247000	8/12	164666.67
1-Nov-18 to 30-Nov-18	250000	1/12	20833.33
1-Dec-18 to 31-Dec-18	262000	1/12	21833.33
Weighted average outstanding shares			249000

Net Income for 2018 = $1,494,000

Basic EPS for 2018 = Net Income / Weighted average outstanding shares = $1,494,000 / 249000 = $6 per share

Solution 2:

Total outstanding shares for 2019 = 262000

Weighted average outstanding shares for 2019 considering stock split = $262,000 * 2 = 524,000 shares

Net Income for 2019 = $1,494,000

Basic EPS for 2019 = $1,494,000 / 524000 = $2.85 per share

Solution 3:

2018 EPS to be presented in 2019 compartive financial statement = $1,494,000 / (249000*2) = $3 per share